#Weekly #Review - Financial Markets & Economics: Commentaries by Fabian Wintersberger

After last weeks' ECB rate decision it was time for another FOMC-meeting this week. Although both press conferences did not contain much new information, some statements caught my attention and I want to write about these in the following before I want to discuss the results of those central bank policies and their impact on financial markets, the economy and society as a whole. So, let us start with the ECB press conference and Christine Lagarde. As expected, no mentions from Lagarde when the Pandemic Emergency Purchase Programs will end, although there may be some signs that the economic situation has improved a little. According to Lagarde, nobody in the governing council is thinking about ending the ECBs stimulus measures because it would be 'premature'.   Although the ECB sounded optimistic: ' The progress with vaccination campaigns, which should allow for a gradual relaxation of containment measures, should pave the way for a firm rebound in economic activity in t...

The most influential economist of the 20th century died 75 years ago this week: John Maynard Keynes. His bestseller The General Theory of Employment, Interest & Money  not only was a huge influence for a whole generation of economists, the book also delivered the theoretical foundation for governments to justify an indefinite rise in public spending. Government spending as an ultimate solution to fight economic downturns. Keynes published his book in 1936, in a time where liberalism and neoclassical economic theory was in a deep crisis. Totalitarianism had spread all around Europe with the rise of Nazi-Germany and the fascist Mussolini government and Rome. Those regimes favored a centrally planned economy, an economic system that is also favored by collectivists left and right.  Keynes central thesis in the GT was the dismissal of Say's law, meaning that supply creates its own demand.  Keynes criticized neoclassical economics because in neoclassical theory there is no...

Last week we saw new all time highs in stocks: The Dow reached 34,000 pts, the Nasdaq is at 14,000 pts and the S&P 500 reached another new all time high as well. The same is true for European equities, where the Eurostoxx 50 was able to climb to a new all time high on Wednesday. Global equities move in only one direction: Upwards. The height of liquidity that is going into equities has been highly impressive recently. According to BofA Global Investment Strategy  576 billion dollars have flown into equities in the last 5 months which is more than during the last 12 years combined , where total inflows were 452 billion. Expansionary monetary and fiscal policy have fueled the global rally in stocks. Global debt/GDP reached an all time high too and is now at 350%. While growth will indeed comeback it is not clear when it will due to the fact that Europe is still mostly in lockdowns and the reopening gets postponed further and further. On Wednesday the German Economic Institute lo...

A few weeks ago I wrote that  With the reopening of the national economies, the resulting economic expansion can still create the feeling of pseudo prosperity. Over time, however, the air is likely to become thinner in both the financial markets and the real economy. However, it will take some time until then. From this point today's commentary starts, because the rally in equity markets has continued since my statement. After moving sideways for month, the Dow Jones has risen to new all time highs and recently passed 33,000 points.  European equities have performed strongly this year as well. While the Eurostoxx 50 is near 4,000 pts and thus in striking distance of another new all time high, the German DAX has also passed the important hurdle of 15,000 pts. The same is true for Asian equity markets. For example the Japanese Nikkei 225 is on its' highest level since 1990 and therefor clearly left behind the 20+ year bear market as many Japanese equity firms used the low inter...

This week I want to talk more about central bank policy and its consequences, especially the ECB and a possible dilemma on the horizon. Whenever ECB members talk about NIRP , they point out that the primary goal of negative interest rates and quantitative easing is to keep financial conditions favorable for the economic recovery , so commercial banks create loans to businesses to create real economic growth. However, it seems that econometric models of central bankers ( not only the ECBs models ) overlook the fact that low-interest rate policies and bond buying programs do not only influence the slope of the yield curve but the structure of the real economy as well. Such policies distort the production process of an economy because it leads to the reallocation of capital. For example, capital X is invested in A instead of B, which distorts the whole supply and demand system. I want to start today's text with a short summary of ECB bond buying programs since 2009 and talk a little b...